Industry Committee on May 16th, 2006

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair. So many questions, so little time.

You mentioned something about trade. I'd like to talk about trade barriers and get your comments.

Recently, I believe, B.C. and Alberta came out with an interprovincial trade agreement, which I thought was wonderful. So I want your comments on interprovincial trade barriers and how it would help if we could lower those for the manufacturing sector.

I'd also like a comment from Mr. Stewart-Patterson. He mentioned that if we can't count on the U.S, what should we do?

I want your comments on international free trade agreements. I know we're discussing Korea right now, but could we have your comments on those two issues?

Thank you.

[David Stewart-Patterson]

On the global trade side, we've always seen an advantage for Canada in supporting the strong rule of law multilaterally. The fact is, multilateral agreements help the smaller countries deal with the bigger ones. Obviously we've also seen a huge impact from our bilateral and trilateral deals within North America. I don't think anybody disputes that those have produced huge benefits, despite the immense difficulty we went through in the adjustment phase in the early nineties.

I think we are at a dangerous point in terms of the global trade regime. There's a sense that negotiations have been bogging down at the multilateral level. There's interest in pursuing stuff at the bilateral level, but progress has been painful at best—and Canada's experience is not unique in that regard.

So I think Canada needs to keep focused on the importance of the multilateral regime and keep making an active contribution to bringing down barriers globally, because the fact is free trade has worked for us. We have done very well the more open we are and the more we've taken part in both regional and multilateral regimes.

In that respect, coming back to your first question on internal trade barriers, yes, the agreement between Alberta and British Columbia was a great example. We had all governments sign agreements on internal trade a long time ago. Unfortunately, we haven't seen the concrete follow-through commitment that we should have.

This comes back somewhat to what Garth was talking about in terms of simplifying regulation. The fact is that taking away rules, simplifying what it takes to do business, and reducing the number of times people have to fill out forms can seem like penny-ante stuff, but those pennies add up. If you look at the experience of other countries in that regard, the Netherlands, for instance, has done a spectacular job of addressing the paper burden side of regulation. It may be easier for them because they're a unitary country, rather than a federal system. The fact is a lot of our regulatory burden flows from the fact that we have multiple layers of government. That puts a premium on governments working together.

Again, I think we are moving into a period in the coming months during which almost everything regarding fiscal arrangements will be on the table between the federal government and the provincial governments. That should be a broader and more comprehensive discussion about how to make the Canadian federation work better and enable companies to flourish more easily—in communities large and small and in every corner of the country.

[Dr. Jayson Myers]

I'd like to start with the international trade agreements.

In this deck, one of the slides a little to the back shows some of the constraints in export development. The trade barriers, or the constraints on our ability to do business internationally, are to some extent constraints in the marketplace, but they're also very much operational constraints. If you look at the constraints on exports, the constraints of bringing new products to market, the constraints on improving operations, you'll see a lot of them are the same--lack of resources, cashflow difficulties, lack of skilled personnel. They reflect the fact that most of the companies in the manufacturing sector are small companies.

That said, there are certainly obstacles we have to overcome if we are going to sell to the rest of the world. Canada is a small market. Our interprovincial trade barriers make it an even smaller market. We're five fragmented markets at best.

Yet the secret to success today in business, particularly in manufacturing, is to become more specialized, more highly technologically sophisticated, and to give better service and more customization. The more specialized you become, the bigger your market has to be. That's why NAFTA was so beneficial to Canadian companies of all sizes--because it allowed them to specialize and gave them the ability to expand in the high-value businesses to take on the American market.

Now the issue is that we've done that; now it's a global economy--global competition, global opportunities. How do we ensure security of access into those markets for our exporters, for investors, and for companies looking for partnerships? I think the best way is through a multilateral approach, but that's not going to go very far very fast.

We do have to focus on bilateral agreements and on regional agreements, but we have to ensure those bilateral agreements actually provide effective market access. The big constraints today are regulatory barriers, customs barriers, and transportation logistics barriers; they are not necessarily tariff barriers. In our agreement with Korea we don't see effective market access in the removal of non-tariff barriers in the Korean market. I don't think it's worth pursuing that agreement and reducing our tariff barriers. We've got a pretty open marketplace here. The objective of that agreement, of others, is effective market access for goods and services.

We're not talking about companies competing in the manufacturing sector; we're talking about supply chains. Unless you have a competitive services industry, a competitive supply base, you're not going to be competitive if you're a global exporter. We've got to go beyond. This is one of the reasons we have to have a broader strategy for manufacturing and for services exports as well.

On the interprovincial trade side, I could not, because of varying transportation regulations, drive a large truck across this country. As a professional, I cannot easily go from province to province, and yet our marketplace in this country is small. We really do have to rationalize that marketplace.

However, looking at the positive side of this, we're seeing changes not only with the negotiations going on in the Canadian marketplace, but also in the logistics, in the opportunities of connecting Canadian industry with China and with the United States, in the development of the Alberta oil sands, and in the energy developments in western Canada. These are opportunities I don't think we can afford to miss, but if we approach these opportunities with the same siloed approach--a sector-by-sector basis, an institutional basis, a province-by-province basis--we are going to miss these opportunities.

I really applaud the agreement between Alberta and British Columbia. I hope it's the basis for future agreements that we see--particularly in regulation, particularly in labour market ability--across the country.

[The Chair, Conservative, James Rajotte]

Mr. Whyte, do you want to make a comment? Then we'll go to Mr. Masse.

[Garth Whyte]

I want to support what they've said. We ask our members about obstacles to international trade. Global financial risk is number one; regulation and non-tariff barriers, number two. I hate sounding like a broken record here, but I think there's a theme.

Border issues are huge. I'm on the Canada Border Services Agency advisory committee. It's not just the rules; it's knowing the rules. The rules are changing; we're not sure what they are. So it's not just alleviating the burden; it's educating people about what is required. We have a whole bunch of cases. We're meeting with the minister's people after this meeting to talk to them about the fact that the rules have changed, and there is stuff being held up at the border because the rules have changed and they didn't realize it. So there are some really fixable things that can be done.

It's funny. When you talk about internal trade barriers, we all take a breath and say, yeah. I remember talking to a series of ministers from different parties who said, yes, it's a top priority, but I'm not sure if I'm willing to charge the barricades one more time without getting the provinces into the same room to do it yet again.

It's very frustrating. Take, for example, labour. The shortage of labour is a huge issue. Labour mobility is a huge issue. At one time we had the federal government and all the provinces lined up with a set of principles to deal with this issue, because the shortage of labour is not just a federal issue; it's a provincial issue and a business issue, and we have to work out a strategy. But it's like corralling cats. It's really hard to get people together to work on a strategy. You almost have to have the one-offs—the Alberta-B.C. type of approach—and then Saskatchewan is going to say it wants in. That's almost the way to do it.

But we do need some sort of overall strategy or set of principles on how to deal with the shortage of labour issue in particular. And these regulations...a truck.... It's brutal going across the country. So we're hurting ourselves.

I don't know how we do it.

[The Chair, Conservative, James Rajotte]

Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

I'm going to focus my questions on two issues to start with, the first on energy, the second on the border.

First on energy, I'd like to hear from all members here. Slides 6, 7, 8, and 9 from the CFIB are rather interesting, because they talk about the issue of fuel prices and energy prices in particular. I'd like to know from your positions.... There are a couple of different things happening relating to energy prices. We've seen an incredible fluctuation, part of it due to the market right now having speculation in it. That has had a significant impact upon manufacturing. What would you advocate for? Should we allow continued speculation to dominate energy pricing as part of the current system, or should that be brought under control?

Further to that, as well, is whether any intervention strategy should be introduced into the Canadian economy or the North American economy. It's been done in provincial jurisdictions. As well, the Bush administration uses state intervention on numerous occasions to actually increase reserve capacity. There's debate about the effectiveness of that, but the reality is that he actually uses state intervention to affect a commodity price, or at least an attempt to affect it. That even has an effect on our exports as well.

So there are models out there to at least temper the price of fuel, and I'd like to hear from the panel how they would advocate for some type of change in the system. Or are you happy with the status quo, what we're living through right now?

It's interesting to note, through these panels, that energy and transportation issues are really the highest-end priorities.

[Dr. Jayson Myers]

Let me start off. I think the uncertainty around the energy market is one of the big factors driving volatility. If there is government intervention, whether it's concerning OPEC or the amount of reserves at hand, the key objective is to diminish that uncertainty. That's key; that's what is going to get rid of that speculation. Deciding how we might be able to do it in a concerted, coordinated way, I think, would be a very complicated process, but it deserves some thought.

As for trying to dictate prices, I think we're in an era of continued high energy prices, simply because of international demand for energy and because of some of the political problems around the world and the supply problems. I don't think we should be regulating prices; the market should be adjusting accordingly.

Manufacturers since 1990 have increased their volume of output by about 65%. They've increased their energy efficiency by over 50%. As a result, in 2003 manufacturers were using only 5% more energy than they were back in 1990. They did that largely through investments in new technology and the turnover of capital and the replacement of old, inefficient production systems by new technology. But they did it in response to market forces and market prices, and I think if we're looking at the ability of Canadian companies to continue to respond, by all means help them make those changes and make those investments and bring in the best of technology. That's what they're doing.

But I don't think we get very far by trying to manipulate the market price.

[Brian Masse, NDP, Windsor West, ON]

I have a quick follow-up question.

What do we do for states that actually do that and that have manufacturing? They use subsidies, in terms of state intervention, to allow for lower energy costs for production. Do we contest those states that do this?

[Dr. Jayson Myers]

We should certainly contest those governments that do it. It is a subsidy. It is certainly not something that is going to assist companies in the long term in being competitive. There are other ways of assisting industry and making those adjustments—part of what we've been talking about before—and making sure that we have a tax system that doesn't act as a disincentive to those investments, or for that matter a set of environmental regulations that don't punish companies for making the progress they've been making in energy efficiency and greenhouse reduction, for example. Those are positive steps we could look at to facilitate some of that transition, some of the efficiency improvement here.

But we get into big trouble if we're trying to manipulate a global marketplace. It's like the issue of trying to control the price of the dollar. The price of the dollar is not really being set by many forces we have control over; it's being set by international commodity/energy prices, and above all by the weakness of the U.S. dollar. There's not a lot we can do except make sure the adjustment process is as easy as possible for Canadian business.

[Corinne Pohlmann]

We would agree with what Jayson had to say. But another element of this, of course, is the tax situation we have on fuel in Canada. Proportionally, Canada's fuel prices have twice as much tax in them as those in the United States, when you combine the federal and the provincial components in the fuel prices we have here. When you think about the fact that we have taxes federally and taxes provincially, we have an excise tax of 1.5¢, plus a tax-on-tax situation where the GST is then applied on top of that, it adds up to quite a bit of the fuel pricing we're dealing with.

[Brian Masse, NDP, Windsor West, ON]

How do you explain, then, that we've had reduced corporate taxes over the last several years and the profits for the oil and gas industry have exponentially and significantly increased? How do we guarantee that if we lower taxes the difference is going to go to businesses and consumers?

Currently the profits are rising significantly, and I haven't seen that passed on to the manufacturing industry. I haven't seen it passed on to the consumer. I would assume the profit margin would remain stable or depreciate if they're going to pass it on the customers.

[Garth Whyte]

One thing is we definitely don't agree with regulating the industry, but we think you should monitor the industry. That's not regulating, but you have to look at what's going on, and just take a look at...I don't know about the pricing, but at least understand more of what's going on internationally and have a better handle on it. I don't think the Competition Bureau does that.

[Brian Masse, NDP, Windsor West, ON]

There doesn't have to be collusion where there's no competition.

I guess what you are asking is how you take the uncertainty out of—the comment was in terms of the pricing element. How do you do that? Do you support speculation? For example, are there more paper barrels that are traded per day than barrels pulled out of the ground? Is that extra cost something that is beneficial to the manufacturing industry, or is it detrimental to it?

Looking at what you're presenting here, your members seem to be indicating that energy pricing is one of the most significant things affecting them, and many are even suggesting it affects their ability to go on. I'm looking at transportation, and they're not only losing money but also saying that 20% could go out of business. That will affect everybody else in the distribution system.

[The Chair, Conservative, James Rajotte]

Could we have a quick response? Then we have to go to Mr. McTeague and Mr. Fontana.

Is there anyone who would like to respond to that?

[Dr. Jayson Myers]

Just to make a point, if we are going to try to take that uncertainty and the speculative effect out of the market, it's a global market, and we have to do it in concert with the global players who are controlling supply, such as OPEC and the U.S.; we'd have to do it in concert with them. It's not something we should try to do by coming up with a made-in-Canada solution, trying to regulate prices. The price is the best signal of supply and demand, even with the speculation.

What we should be doing, though, is looking forward. If we are truthful, the future is one of constrained resources and constrained energy use. How do we manage that situation? It's going to be an economy of high energy prices, and manufacturers and industry have to adjust to that over a period of time.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. McTeague. He is sharing his time with Mr. Fontana. We're down to five minutes now.

[Dan McTeague, Liberal, Pickering—Scarborough East, ON]

Mr. Myers, thank you. To Mr. Stewart-Patterson and to Garth and to everyone here, thank you for coming so quickly. Thank you to our researchers.

I can only suggest that if there is to be some oversight in the energy industry, we would want to look at the disparity between Canada and the United States in international prices for wholesale gasoline, which remain 5¢ to 6¢ a litre above international prices. There have been no significant investments in that industry, further to what Mr. Whyte has said; he's correct. We don't just need to monitor the situation; we need to look at it because of its wider impacts. We shouldn't be punishing ourselves. We're a self-sufficient nation.

I'm concerned about the issue of energy simply because it's a blessing for some regions of the country and a curse for others. It's almost like a tale of two cities.

In this we have two problems; one, higher valuation, has been rightly pointed out. Mr. Myers, you pointed out a little earlier that it's not where the dollar is, but the rate of its rise. At the same time, Canadians have not seen a corresponding decline in the cost of imports. I don't know if we're seeing this at the retail level, but I know it's a concern. It's a double whammy for consumers, whether you're in Edmonton, Alberta, or you're in Oshawa or Pickering or Scarborough or Ajax. Regardless of where you are, the fact is that energy prices are having a tremendous impact on the bottom lines of all your members.

Is there is a way that you see in the foreseeable future...? Mr. Stewart-Patterson, you talked a little bit about having what appears to me to be all our eggs in one basket with respect to trade with the United States, almost to the exclusion of all others. At the same time, energy is being consumed by other nations around the world. What are we doing, what can we do better, other than cutting our programs like EnerGuide, in terms of efficiency here at home, which the government is doing? What do you believe we can do better to increase our trade, to increase our manufacturing, without punishing Canadian consumers for the cost of energy, for which we pay dearly in taxes over the years?

[David Stewart-Patterson]

There are a number of elements to that. As you say, high energy prices are both a blessing and a curse, depending on where you sit. On the one hand, we've got to recognize, as Jay Myers was pointing out, that a lot of the fluctuation, the volatility, that we've seen in energy prices worldwide flows from the fact that a lot of the major producing regions are facing highly unstable situations. Canada has a competitive advantage in that sense, because not only are we next door to a major consuming market, but we're also remarkably reliable and stable as a country. That's a huge advantage for a country anywhere in the world that is looking for a long-term supply, not just the Americans. The fact that our oil sands are such a long-term resource is important in that regard too.

What does that mean in terms of domestic policy? Again, the fact is we've tried interventionist policies on that and we know they don't work. You mentioned the connection to environmental policy. Well, there's no better signal, whether to a business or to a consumer, to spend some money investing in better energy efficiency than letting the prices be high. I think we've got to keep in mind, even if your priority is a matter of policy, or we're trying to reduce emissions, pollutants, greenhouse gases, and so on, that high prices, however painful they may be, make a contribution to those goals.

When we talk about national objectives, we've got to define what particular problem we're trying to solve, because a lot of these pieces interlock, and what's a problem in one direction can be part of a solution in another.

[The Chair, Conservative, James Rajotte]

Mr. Fontana is next.

[Joe Fontana, Liberal, London North Centre, ON]

Thank you.

That was an excellent presentation.

I think you've got it right in terms of where the problems are and where the challenges are, especially in relation to capital and investments and some of the things we need to do. I know you've essentially said there's not much we'll be able to do on the monetary side in terms of the dollar, or even interest rates, for that matter--or even, as you've indicated, on energy costs. Yet, as you've indicated, there are a few things we might be able to do to stop this tidal wave that may in fact be a promise for us, or even an additional curse. Let me talk about a couple of things.

I believe in these things in terms of deregulation, innovation, immigration, and making sure we attract the investment. I think all of that side you have done. I get a little concerned when I hear some notion from the NDP that we ought to nationalize, have nationalization, or that there's something wrong with profits, as if profits aren't in fact return for investments, and so on. But let me just ask you, in terms of deregulation, and we've talked about it and everything else, or to mitigate against the dollar, or the fact that we need 250,000 positions today or in the next ten years we may not have the human resources--labour mobility, absolutely--what can we do as a federal government? The problem is there are an awful lot of provincial regulations that preclude us from doing all of these darn things that are important.

Are we to move quickly on deregulation? We don't have a lot of time to do this because this tsunami is heading this way. Second, if depreciation is the short-term answer to a rising dollar if we are to remain competitive and not shed any more dollars, what do we need to do on the human resources side to make sure those jobs are being filled by the people who are still unemployed or whom we need to bring into this country?

[The Chair, Conservative, James Rajotte]

You're a minute over.

Mr. Whyte.

[Garth Whyte]

On the regulation side, being the chair of the paper burden committee within Industry Canada, we've set out some guidelines. Our report hasn't been released yet—hopefully it will be released soon—but with our report on the regulatory side, we've come down to saying, as we've done so many times, here are the principles that need to be followed, which were started by your government of the day and which I hope, and am pretty sure, will be continued by your government.

First, you've got to measure the regulatory burden; you've got to measure and understand the extent of it. We've said that it's costing the economy $33 billion. Is that acceptable? And then you say, no, it's not, so you set targets.

Next, you have to institutionalize the measurement and reporting of it. We can't have just one office and a committee chair saying quickly, these are the things you should do, and then we list five quick hits. It's like weed whacking; you knock down a few weeds, but 10 more grow up over here. You need to have a concerted effort.

Third, you should be a role model and you start it off yourself. Provinces are already doing some stuff: B.C. reduced the regulatory requirements—not regulations, but the number of steps—by 40%, and they're measuring it, and they're committed to continuing to do it.

We've got a list of 10 things here, but you need commitment from the top; you need commitment right from the top and from all parties.

I think this is a very doable, winnable issue. It takes some time, but it's also about giving the perception to people that it's improving, that the climate is improving, that you're committed and that it's a concerted effort.

Imagine not having an ongoing budget process. Some municipalities have a budget bigger than that of P.E.I., bigger than that of some provinces, and they don't have a budget process. It sounds ludicrous. Well, I'm saying, we don't have a regulatory review process and it's just as ludicrous. I think we have to start setting that up and doing a report on a regular basis.

Someone else was talking about labour issues, and that's another hot issue--

[The Chair, Conservative, James Rajotte]

Mr. Whyte, I'll have to cut you off there.

At this point, I would just step in to advise members that we're in a five-minute round, with five minutes for questions and answers.

Especially to the witnesses, if you do take up a lot of time, basically you'll take up all of the members' time.

At this point, we're now at eight minutes in a five-minute round, so we're now moving to Mr. Shipley. There are five minutes for questions and answers, so I encourage you to be brief in your questions and brief in your responses.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I'll do that.

Thank you, Mr. Chairman. I also want to thank the panel for coming today. It's been very interesting as a new member to sit on this panel. Actually, I'd like to continue the discussion that Joe started in terms of the regulatory issues. I think they are really important, and I want to ask if you could give us some insight in terms of what, as a federal government, we could look to in terms of working towards that.

I also want to touch on one of the things you talked about as significant. It's a little aside from this, obviously, but it's about insurance. Not to put words in your mouth, you basically said it was a no-brainer that we should be doing something about it. So I would ask for some direction and help in terms of understanding that part of it.

Thank you.